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Key Takeaways

Difficulty:Beginner
Reliability:High
Category:volatility
Timeframes:4H, Daily, Weekly

Donchian Channels

volatilityšŸ“Š 4H, Daily, Weekly

Price channels formed by the highest high and lowest low over a specified period.

Formula

Code
Upper Band = Highest High over N periods
Lower Band = Lowest Low over N periods
Middle = (Upper + Lower) / 2

Detailed Explanation

Donchian Channels, created by Richard Donchian, plot the highest high and lowest low over a period.

**Famous Usage:** The Turtle Trading experiment used Donchian Channels for entry signals: - Buy when price exceeds 20-day high - Sell when price falls below 20-day low

Parameters

Period
Default: 20
Lookback period

šŸ“ˆ Bullish Signals

Price breaks above upper band (new 20-day high)

šŸ“‰ Bearish Signals

Price breaks below lower band (new 20-day low)

Python Implementation

Donchian Channels calculation

Python
import pandas_ta as ta
dc = ta.donchian(df['high'], df['low'], lower_length=20, upper_length=20)
df['DC_Upper'] = dc['DCU_20_20']
df['DC_Middle'] = dc['DCM_20_20']
df['DC_Lower'] = dc['DCL_20_20']

TradingView Pine Script

Try on TradingView
JavaScript
//@version=5
indicator("Donchian Channels", overlay=true)
upper = ta.highest(high, 20)
lower = ta.lowest(low, 20)
middle = (upper + lower) / 2
plot(upper, "Upper", color=color.red)
plot(middle, "Middle", color=color.gray)
plot(lower, "Lower", color=color.green)
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MT5 MQL5 Code

C++
double upper = iHigh(_Symbol, _Period, iHighest(_Symbol, _Period, MODE_HIGH, 20, 0));
double lower = iLow(_Symbol, _Period, iLowest(_Symbol, _Period, MODE_LOW, 20, 0));

Python Libraries

pandas-ta
Technical analysis
pip install pandas-ta

Common Mistakes

āœ—Not using proper position sizing with breakouts
āœ—Ignoring false breakouts

Confirmation Signals

Volume on breakout
ADX
Price action

Best For

Breakout tradingTrend followingTurtle Trading

šŸ’” Pro Tips

  • ā€¢Used in the famous Turtle Trading system
  • ā€¢Simple but effective breakout indicator
  • ā€¢20-day and 55-day are popular periods
Last updated: December 29, 2024

Educational Disclaimer

This content is for educational purposes only and does not constitute financial or investment advice. Trading involves significant risk and you may lose your capital. Always consult a licensed financial advisor before making investment decisions.

Learn More

Investopedia - Technical IndicatorsBabyPips - Technical IndicatorsMetaTrader 5 Docs

Frequently Asked Questions

Related Indicators

Bollinger Bands

Consists of a middle band (SMA) and upper/lower bands set at standard deviations from the middle.

Average True Range (ATR)

Measures market volatility by calculating the average range between high and low prices.

Keltner Channels

Volatility-based envelopes using EMA and ATR, similar to Bollinger Bands but smoother.

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